BP 2011 Annual Report Download - page 125

BP Annual Report and Form 20-F 2011 123
Corporate governance
Corporate governance
Board oversight
Occurs periodically at board level
Results in allocation and
oversight over group risks
Executive and functional oversight
Occurs periodically at
executive and function levels
Results in governance
over group risks
Business risk management
Occurs periodically at
business and function levels
Results in risk reports
Day to day risk management
Occurs at
operations and functions
Results in risk data
Risk management in BP is a ‘top-down’ and ‘bottom-up’ process. The
‘bottom-up’ process starts at the day-to-day level with businesses and
functions identifying and managing their risks using existing company
standards and practices, e.g. OMS. The most significant risks are organized
into common categories – strategic risks, safety and operational risks and
compliance and controls risks – so they can be reported up the line in a
standardized form.
During the year a review of BP’s risk management system was
initiated which has built on our current system of risk management. Using
the findings of this review, BP has started to implement enhancements
to drive consistency and clarity in how risks are reported and understood
in all levels of our organization from operations to the board. See
Our management of risk on page 42 for further discussion of the risk
management system and 2011 review.
Within BP’s risk management system, functions set standards,
provide guidance and provide a view of group risks in their functional area
of expertise, independent of line management. Certain functions also
deliver assurance that the activities to manage the risks are working as
intended in the businesses.
Group risks are allocated to one of the committees established
by the group chief executive for management and monitoring.
These executive level committees are sub-committees of our senior
management team and their role includes setting policy, making decisions
and overseeing the management of risks and performance. The executive
committees are:
• Group operations risk committee (GORC) for risks of a safety,
environment or operations nature.
• Group financial risk committee (GFRC) for finance and trading risks.
• Group disclosure committee (GDC) for financial reporting risks.
• Group people committee (GPC) for people risks.
• Resource commitments meeting (RCM) for risks related to investment
decisions.
At the group level, risk is examined by the board to apply a ‘top-down’
perspective. The group risks identified as requiring particular oversight in
the coming year are selected for discussion with the board. These are then
allocated for review by the board or one of its committees. A common
agenda for the review is established to enable the board or committee to
discuss risk in a consistent manner with executive management.
The board examines group risks both on a periodic basis and as part
of its review of the annual plan. The board also conducts an annual review
of the risk management and internal control systems as required by the UK
Corporate Governance Code. During the year there is flexibility to change
which risks have been identified as requiring particular oversight and which
have been allocated to the board and its committees, in the event there are
any changes to the internal or external environments or events arising.
Following its review of the 2012 annual plan, the risks described
above have been allocated for review by the board and its committees as
follows:
• The board has been allocated several strategic and safety and operational
group risks, including risks associated with the macroeconomic outlook,
the delivery of the 10-point plan, the group’s exposure to Russia, crisis
management, reputational impact and the recruitment and development
of staff.
• The audit committee has been allocated a number of compliance and
control and safety and operational risks, including risks associated with
treasury and trading activities, compliance with applicable laws and
regulations and security threats against our digital infrastructure.
• The safety, ethics and environment assurance committee has been
allocated several safety and operational and strategic risks, including
risks associated with conducting our operations through joint ventures
or associates and through contracting and sub-contracting arrangements
where BP may not have full operational control. Other safety and
operational risks the committee have been allocated include the health,
safety and environmental risks of incidents associated with the drilling of
wells, operation of facilities and transportation of hydrocarbons.
• The Gulf of Mexico committee has been allocated a number of strategic
risks, including risks associated with the extent and timing of costs and
liabilities relating to the incident and the possible impact on our licence
to operate.
Board activities during 2011
2011 was another active year for the board, which met 15 times. The
board’s focus remained on the incident in the Gulf of Mexico – both to
understand what happened and how the company can apply the lessons
learned. Within the board and its committees, debate and assurance
has been ongoing with management on key aspects such as the impact
on the group’s reputation, accounting treatment and provisioning,
implementation of the recommendations of the Bly Report and the legal
and communication strategy for litigation arising from the incident. The
challenge has remained for the board to ensure that it devoted enough
time to the ongoing business of the company whilst holding these
important discussions. Periodic meetings throughout the year of the non-
executive directors comprising the chairman’s committee, together with
liaison between the chairman and the chairs of the board committees,
have assisted in managing this challenge. Areas discussed by the board
included the following:
Strategy
The board is engaged at the early stages of discussion on strategy and the
annual plan in order to provide constructive challenge. During the year two
day-long meetings were held for strategic discussions. After the February
2011 update to the market the board continued to develop the company’s
strategy with respect to milestones and deliverables, resulting in a further
market update in October on the company’s ”10-point-plan”. Over the
year, the board considered key strategic elements, including biofuels,
Canadian heavy oil and the company’s disposal programme. The board also
spent considerable time discussing strategic opportunities and implications
of the strategic alliance that had been proposed with Rosneft and the new
relationship with Reliance.